Question

Orange Valley Industrial is considering a project that would last for 2 years. The project would involve an initial investment of 71,000 dollars for new equipment that would be sold for an expected price of 68,000 dollars at the end of the project in 2 years. The equipment would be depreciated to 21,000 dollars over 5 years using straight-line depreciation. In years 1 and 2, relevant annual revenue for the project is expected to be 78,000 dollars per year and relevant annual costs for the project are expected to be 19,000 dollars per year. The tax rate is 50 percent and the cost of capital for the project is 6.34 percent. What is the net present value of the project?

Answer 1